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Ethical bank disclosures and liquidity creation

Kladakis, George; Chen, Lei; Bellos, Sotirios K.

Authors

Lei Chen

Sotirios K. Bellos



Abstract

Ethics in finance and in banks have attracted increasing attention after the global financial crisis of 2007-2009. Although engagement in more ethical activities for banks has been a legitimate social expectation, the impact of it on the financial performance appears to be unclear. We examine whether ethics-related disclosures can help banks create more liquidity by conducting textual analysis of hand-collected bank annual reports and unearth interesting findings. First, we find that the probability of including a code of ethics in the annual report increases with bank risk (i.e. loan loss reserves and risk-weighted assets). Second, our results indicate that liquidity creation is positively associated with the relative frequency of ethics-related terms in the annual reports of banks that publish a code of ethics. Our findings suggest that ethical bank disclosures can mitigate risk concerns and attract more business that allows banks to create more liquidity.

Journal Article Type Article
Acceptance Date Feb 15, 2023
Online Publication Date Feb 18, 2023
Publication Date 2023-04
Deposit Date Feb 20, 2023
Publicly Available Date Feb 20, 2023
Print ISSN 1042-4431
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 84
Article Number 101754
DOI https://doi.org/10.1016/j.intfin.2023.101754
Keywords bank ethics, liquidity creation, annual report, textual analysis

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